The microfinance industry is in favour of extension and expansion of the Credit Guarantee Scheme for micro lenders in 2022-23 amid rising Covid cases in the country.

Industry association Sa-Dhan in its budget submission to finance minister Nirmala Sitharaman has said that the scheme should be extended to MFIs next financial year with an amount of Rs 15,000 crore and at least 75 per cent of the funds should be earmarked for small and mid-sized MFIs.

The earlier scheme that was valid till March 31, 2022 or till guarantees for an amount of Rs 7,500 crore are issued, has already been fully utilised.

Around 60 MFIs received sanction from banks under the scheme. Around 65 per cent of the amount has been disbursed to the borrowers and the balance is in various stages of sanction/disbursement.

The industry body has further pointed out that due to the pandemic, capital of smaller MFIs has been impacted due to which it would be difficult to mobilise additional investment. Subordinated debt with tenure of 5-7 years could help MFIs to augment their tier 2 capital.

NBFC-MFIs are required to maintain a minimum capital adequacy ratio of 15 per cent with 10 per cent tier 1 capital and remaining in tier 2 capital under RBI norms.

Sa-Dhan has also urged the finance minister to consider allowing issuance of tax-free social bonds for 5 years by Sidbi and Nabard to exclusively provide debt/equity to MFIs operating in semi urban or rural areas, which will help to uplift the lives of rural population. Social Bonds will have a high multiplier effect if fiscal incentive is provided to ensure higher individual and corporate participation.

The association has also called for an augmentation of the India Microfinance Equity Fund at Sidbi/Mudra to provide support to small and medium MFIs and setting up of a Rs 1000 crore Microfinance Development Fund in Nabard to support not for profit MFIs.

“The microfinance sector disbursed Rs 2,03,262 lakh crore last fiscal, which is close to 1.5 per cent of India’s GDP. If the sector is supported adequately in the upcoming union budget, it can play a pivotal role in reviving and steering growth and consumption,” said P. Satish, executive director, Sa-Dhan.